The performance of the markets this January has been among the worst on record.  Almost everything has been down sharply, with the exception of the beaten down homebuilding and financial services sectors which actually posted nice gains.   While we’re warming up to the financial sector given easing monetary conditions, the upward move has likely been exacerbated by short covering as well as the abatement of December tax loss selling, a common occurrence in January each year.  

Overall, we remain positive on the markets.  Not because we think the economy has escaped a recession, but because we believe it is largely discounting one even though the evidence is still unclear.  GDP growth did come in at just .6% for the fourth quarter, just a hair above zero, but still qualifying as positive growth.  The Fed’s language in their cut yesterday was encouraging, indicating that while they had made a number of aggressive moves, they still stood ready to move again if necessary.  The stock market initially rallied but then faded aggressively on the news that a ratings agency had downgraded a mortgage insurer.

As we mentioned earlier this week, earnings results have generally been good, with positive, albeit softer guidance.  With the exception of many financial companies, there haven’t been many disasters or instances of large scale layoff announcements as one might expect in an economy wide recession.   In fact, most of the growth companies we track have continued to expand their payrolls.  That being said, stock prices have almost universally come under pressure following earnings announcements.  This has had less to do with fundamentals than current investor sentiment where once overlooked uncertainties have now been magnified many fold.

It has been said before that as January goes, so goes the market.  In this case, I’m not a believer.  In the past week, the Fed has finally shown a willingness to move ahead of the crisis rather than simply respond to it.  Let’s hope it stays that way and that the legend of bad January’s, at least in this case, can be put to rest.